Analysis Of Printer Solutions Ltd Financial Performance

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Liquidity Ratios
Current Ratio	2015	2016 Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2017
Current Assets	782.00	1,170.00	1,452.00
Current Liabilities	507.00	835.00	887.00
Current Ratio	1.54	1.40	1.64
Quick Ratio	2015	2016	2017
Current Assets	782	1170	1452
Inventory	350.00	510.00	680.00
Prepaid Expenses	0.00	0.00	0.00
Quick Assets	432.00	660.00	772.00
Current Liabilities	507.00	835.00	887.00
Quick Ratio	0.85	0.79	0.87
Solvency Ratio
Debt Ratio	2015	2016	2017
Total Liabilities	1,007.00	1,835.00	2,387.00
Total Assets	1,702.00	2,670.00	3,302.00
Debt Ratio	0.59	0.69	0.72
Debt to Equity Ratio	2015	2016	2017
Total Liabilities	1,007.00	1,835.00	2,387.00
Total Equity	695.00	835.00	915.00
Debt to Equtiy Ratio	1.45	2.20	2.61
Efficiency Ratio	2015	2016	2017
Total Asset Turnover	1.55	1.22	1.03
Net Sales	2,060.00	2,660.00	3,080.00
Average total Assets	1329.50	2186.00	2986.00
Inventory Turnover Ratio	5.64
Cost of goods sold	1566	2010	2350
Average inventory	277.5	430	595
	2015	2016	2017
Profitability ratio
Return on equity	0.22	0.17	0.09
Average Total Asset	1329.50	2186.00	2986.00
Net Income	154.00	140.00	80.00
Return on Asset	0.116	0.064	0.027

Liquidity Ratios

The issues of going concern of Printer Solutions Ltd can be analyzed by conducting trend and ratio analysis that helps in evaluating the financial performance of company over a period of time. Auditors are required to make an important judgment about the going concern whether the organization is in considerable distress. As per the auditing standard, auditors should evaluate the financial position after the auditing of the statements has been done. Ratio analysis enables auditors to evaluate the information available in the balance sheet and income statement of company and ascertain existence of any relationship between the elements that is unusual (Ahn & Jensen, 2017).

The evaluation of financial position of Printer solutions limited is done based on the information and figures that is depicted in the financial statements. Such evaluation is done by analyzing the liquidity, solvency, efficiency and profitability position of company. Current ratio of company initially reduced from 1.54 in year 2015 to 1.4 in year 2016 and thereafter it increased to 1.64 in year 2017. On other hand, quick ratio stood at 0.85 in year 2015 that reduced to 0.79 in year 2016 and further the value increased to 0.87 in year 2017 respectively. It is depicted from the analysis of figures that liquidity position of company has declined initially and it has improved thereafter. Now, looking at the solvency ratio that is debt ratio and debt to equity ratio, it can be seen that value has increased continuously. Debt ratio has increased from 0.59 in year 2015 to 0.69 in year 2016 and further it has increased to 0.72 in year 2017 respectively. This is indicative of the fact that company is highly leveraged and their ability to pay liabilities using assets have declined. On other hand, looking at the figures of debt to equity ratio, value has increased considerably from 1.45 in year 2015 to 2.2 in year 2016 to 2.61 in year 2017 respectively. This higher value of debt to equity ratio indicates that ability of investors to finance the operations of company has reduced and it make organization dependant on outside liabilities. Furthermore, looking at the values of efficiency ratio, it can be seen that return on equity has reduced significantly from 0.22 in year 2015 to 0.17 in year 2016 and further to 0.09 in year 2017. Falling return on equity is illustrative of the fact that poor decisions is made by management on reinvested capital in assets that is unproductive. Return on assets on other hand, has also reduced from 0.116 in year 2015 to 0.064 in year 2016 and further to 0.027 in year 2017 respectively. This fall in value depicts that the effectiveness of company in generating return from their assets have reduced.

The account balances of Printer solutions Ltd that could potentially be materially misstated are as follows:

Cost of goods sold account- The cost of goods sold of Printer solutions has increased year on year as evident from the income statement. There is considerable increase in cost of goods sold to 2350 in year 2017 as against 1566 in year 2015. It can be inferred that this considerable increase in cost of goods sold might indicate that there might be overstatement of charges and credit for amount that is transferred to work in progress and finished goods.

Solvency Ratio

Revenue account- The occurrence of fraud in financial statements of company might depict that revenue account is materially misstated. If the organization is making excess amount of sales in relation to production capacity, it might be certain that there will be recording of fictitious assets (Bills et al., 2015). Trend analysis indicates that in year 2017, the volume of sales has increased by 15.79%. This could indicate that for returning goods, there might be some agreements that is not disclosed with customers.

Expenses account- The expenses account has the certainty of being under or over stated. Liabilities might be under recorded and there might not be proper inclusion of invoices relating to expenses. Increased funding generated from cash flow and loan facility might be used for covering increased expenses of company (Trotman et al., 2015). 

Assertions are considered as management claim concerning certain business aspects. For different types of material misstatement relating to account balances, some assertions are made by authors.

Expenses- There is no adequate disclosure of occurrence of expenses in the business and in the notes to financial statements. Therefore, accuracy, valuation and occurrence are the assertions related to inventory account balance.

Inventory- Allocation, valuation and existence are some of the assertions that are of primary interest to organization. Inventory value recorded has certain possibility of materially misstated since their valuation is not done at an appropriate amount.  

Revenue- Assertions that are associated with revenue account involves allocation, valuation and completeness. There might not be disclosure of such amount in the financial statements; however, they are applicable to reporting period. Valuation of recognition of revenue and that of sales figures are done during accounting period.

The key control that has been identified in relation to cash collection and revenue are as follows:

Ensuring that all payments are received and recorded on due date- Organization should ensure than revenue should be recognized and collected when they are falling due and revenue department should introduce financial control. For revenue collection, a well designed control system should be implemented. The control system should be able to properly track the revenue in an appropriate amount and they should not be carried forward (Christensen et al., 2016).

Accurate accounting of all revenue and cash related transactions- The internal control system of Printer solutions Ltd should be structured in such a way that revenues in relation to services provided are reconciled. There should be minimization and diversion of risks related to fraud by developing procedures properly.

Performance measures- The measures of performance are related to short term revenue targets and there is certainty that revenue figures might be misstated. This happens when the management has any unexpected realization. In order to make proper reporting of cash and revenue figures, there should be appropriate development of performance measures (Gaynor et al., 2016). This calls for organization to have well built internal control system so that reported figures are recorded accurately.

Determining standard for recognizing revenue- Organization is required to have proper procedures and effective guidance with having adequate authorities accounting for revenue. Recording of cash revenue should be done in a prompt manner so that any amount is not missed out and it should be received and deposited appropriately. It is required by Printer solutions Ltd to make an improvement concerning transmittal revenue since the office assistants and typist are responsible for receiving all revenues. The cancellation of contracts should not only be the bookkeeper responsibility and there should be some appropriate authority regarding this (Waldman & Jensen, 2016).

Efficiency Ratio

 The test of controls that would be used for examining revenue from services accounts are as follows:

• Some of the authorities that should be involved in formulating test of control for examination of revenue from service account are people who are involved in recording of receipts, accepting and approving credit sales and pre numbering invoices and collecting monthly fees.
• The accounting for numerical transactions of contracts which the customers are permitted to Veterinarian one routine services should be reviewed on regular basis.  It is required that such contracts should be properly inspected for such approval indication.
• Entity level control should be exercise by organization that involves control over management override and any control associated with control management. The material misstatement detection has the likelihood of directly impacted by such control system.
• There should be proper recording of all documents relating to customers. In addition to this, the journal entry should be recorded properly.

In conducting an integrated audit, auditors make use of reliable control system for lowering their substantive testing in financial statement accounts and financial disclosures. Therefore, there would be insufficient testing of account and financial account disclosure if there exist deficiency in internal control evaluation. There might be some inherent risks attributable due to the nature of business that might be addressed by the test of control developed through substantive testing. Customers in case of Printer solution Ltd are required to sign on duplicate annual contracts and on other hand, they are also provided with original copy by filling it in numerical order. This increases the likelihood of employees and staff getting involved in fraud. Therefore, this risk is regarded as inherent to organization’s system. The existence of material misstatement in such accounts might not be detected by auditors on inspection of such contracts (Saha & Roy, 2017). Furthermore, auditors should perform the testing of development of operational effectiveness of testing control that should comprise of appropriate personnel inquiry, inspection of relevant documentation and re performance of control. This is done in situation when auditors cannot rely on the developed control systems.

NSW Rural health is required to take into some account some factors while implementing the payroll system application and they are as follows:

New payroll system application complexities- The access of transaction and master files are restricted by the new payroll application. When dealing with the application of implementing the software, the existing staffs might get perplex. Lack of detailed and comprehensive methodology of training is one of the major setbacks that rural health will experience. Such payroll application can be halted if the organization does not have clear timing plan. The payroll staffs and payroll supervisor should not only be entitled to accessing such files (Goodwin & Wu, 2016). Therefore, monitoring of all such accounts would be difficult on part of management.

Length of time- Since there is a wide variation in the average length of typical procedure of implementation of software, there would be timing crunch in the application of new payroll by NSW Rural health. Another challenge that would be faced by organization in transitioning to new system would it takes for data migration and continuing business smoothly. Implementation of such system is regarded as complex because existing staffs are supposed to provide them with adequate training for migration and learning to new system (Power & Gendron, 2015).

Description of application control applicable to wage expenses and salaries are as follows:

1. i) Occurrence of expense transactions- Reconciliation of the accounts of wages and salaries can help in ensuring the occurrence of such transactions. One of the important control activities relating to this is the reconciliation of accounts. It should take into consideration the adjusted gross salaries, taxable wages; total number of hours worked and account deductions on flexible spending. The number of hours that is entered into the payroll system should be balanced to the summary of report of hours from time sheets generated from payroll system (Mitra, 2016). Moreover, annual contribution might be elected by employees to the accounts having flexible spending. Therefore, all these factors should be incorporated in the control activities of reconciliation for identification of expenses transactions occurrence.
2. ii) Accuracy of expense transactions- Documentation of control activity will help in identifying the expense transactions accuracy. The proper documentation of all such activities should be completed and verified by authorized employees. Verification of information should be done by employees by completing the forms filled in with the personal information. Employees can complete and submit such forms online with advances in information technology and payroll software (Bowlin et al., 2015).

The effectiveness of new payroll application that is employed by NSW Rural Health is evaluated by designing the appropriate test of control.

• NSW Rural Health should implement additional procedures of control and provide training to additional staffs. This will help in minimizing the errors and exceptions in payroll processing.
• Measures should be taken by organization for strengthening the control system in concerned areas such as total payrolls reconciliation to other financial records, security of payroll information and checking different versions of payroll files (Chan & Vasarhelyi, 2018).
• There should be implementation of systematic approach for regularly reviewing and updating the policies and procedures of payroll system. Moreover, organization should develop additional policy and procedural documentation for properly addressing the key areas of process of payrolls.
• Attention should be given to the existing control system process implementation. This is so because it will help organization to address the risks that arises from substantial change in payroll data (Prasad, 2016). Such change involves rising award processing for increasing number of employees.
• Organization should ensure that key payroll functions should be reviewed on cyclical basis by internal audit. They should adopt a more systematic and formal approach for monitoring and reviewing of payroll activities (Fung, 2014). 

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